COVID-19 Pandemic Impact on Nursing Homes Financial Performance

Nursing homes expressed concern about potential severe adverse financial outcomes of COVID-19, with worries extending to the possibility of some facilities facing closure. Maintaining a strong financial well-being is crucial, and there were concerns that the pandemic might have significantly impacted both expenses and income. This longitudinal study aimed to analyze the financial performance of nursing homes during COVID-19 pandemic. Specifically, we examined the impact of the pandemic on nursing home operating margins, operating revenue per resident day, and operating cost per resident day. The study utilized secondary data from various sources, including CMS Medicare cost reports, Brown University’s Long Term Care Focus (LTCFocus), CMS Payroll-Based Journal, CMS Care Compare, Area Health Resource File, Provider Relief Fund distribution data, and CDC’s NH COVID-19 public file. The sample consisted of 45 833 nursing home-year observations from 2018 to 2021. Fixed-effects regression analysis was employed to assess the impact of the pandemic on financial performance while controlling for various organizational and market characteristics. The study found that nursing homes’ financial performance deteriorated during the COVID-19 pandemic. Operating margins decreased by approximately 4.3%, while operating costs per resident day increased by $26.51, outweighing the increase in operating revenue per resident day by about $17. Occupancy rates, payer mix, and staffing intensity were found to impact financial performance. The study highlights the significant financial impact of the COVID-19 pandemic on nursing homes. While nursing homes faced substantial financial strains, the findings offered lessons for the future, underscoring the need for nursing homes to improve the accuracy of their cost reports and enhance financial transparency and accountability.


Introduction
2][3][4][5][6] As such, concerns about the financial viability of nursing homes have come to the forefront. 2A recent study by Hughes et al shows that from 2011 to 2021, there were approximately 1459 nursing home closures, or 8.9% of the study sample.Urban facilities and those with higher proportions of racial/ethnic minorities and Medicaid residents were at higher risk of closure. 7[10] COVID-19 may have affected both costs and revenues.2][13] During this crisis, nursing homes had no choice but to purchase supplies at inflated prices.Even when the federal government stepped in to intervene using the Defense Production Act to increase PPE and supplies, hospitals were the primary priority while nursing homes were secondary or even further down the priority line. 14Additionally, the existing staffing shortages in nursing homes, which were already a challenge before the pandemic, were intensified.][17][18][19][20][21] On the revenue side, nursing homes may have had a decline in post-acute admissions during the pandemic since they were hesitant to accept new residents for fear of spreading the virus. 22,23Hospitals that tried to discharge patients quickly received pushback from nursing homes. 22,24,25The unwillingness to accept new and/or returning residents and the increased death rate may have resulted in decreased occupancy with potential impact on revenues. 24,26On the other hand, during the Public Health Emergency (PHE), the Centers for Medicare and Medicaid Services (CMS) introduced waivers that may have positively impacted Medicare reimbursement for nursing homes.One of these waivers eliminated the requirement for a 3-day hospitalization before a skilled nursing admission.This allowed patients to be admitted directly to a nursing home from the community or an emergency department to receive skilled nursing care. 27urthermore, the intervention of the federal government through the Coronavirus Aid, Relief, and Economic Security (CARES) Act funding was essential in providing muchneeded support to nursing homes during the pandemic.Even with its positive impact, the CARES Act funding may have been insufficient in fully addressing all the challenges faced by some facilities. 10,28,29][31] Regardless of efforts to distribute funds based on need, some nursing homes with smaller budgets or those serving primarily Medicaid patients may not have received enough funding to address the challenges posed by the pandemic.On the other hand, concerns were raised about the potential exaggeration of financial challenges by some facilities to secure more funds and the possible misuse of these funds. 4,29,32espite the challenges posed by increased costs and low occupancy rates during the pandemic, an interesting trend of buying and selling nursing homes emerged, reflecting investors' perception of these facilities as potentially lucrative assets. 33Notably, Ensign, the largest publicly traded nursing home entity, reported a significant increase in both stock prices and profit margins 33 This trend was also observed among many Real Estate Investment Trusts (REITs) with ownership stakes in nursing homes, experiencing similarly elevated financial performance during this period. 33o date, there has been limited research examining the impact of COVID-19 on the financial performance of nursing homes.A study by Kingsley and Harrington of publicly traded nursing home companies from 2018 to 2020, showed that COVID-19 had little financial impact. 28In another study of California nursing homes between 2019 and 2020 showed that some nursing homes had a substantial increase in profit margins between 2019 and 2020. 34Using national, longitudinal data from 2018 to 2021, this study analyzed the impact of COVID-19 on nursing homes financial performance.Financial stability is critical for any successful organization.Sustained, poor financial performance puts an organization's solvency in question. 2,35Monitoring the continual dynamics of nursing home finances is critical to understanding how nursing homes are faring given the ever-changing environmental climate in which they operate.

Data Sources
(PBJ), CMS Care Compare, Area Health Resource File (AHRF), Provider Relief Fund distribution from U.S. Department of Health and Human Services (HHS), and NH COVID-19 public file from Centers for Disease Control and Prevention (CDC) from 2018 to 2021.Medicare Cost Reports provides financial data for nursing homes that participate in the Medicare program.LTCFocus data provides nursing home organizational information such as occupancy rate, acuity index and racial/ethnic mix.CMS Care Compare contains facility information such as RN skill mix, and star ratings.The Payroll-Based Journal (PBJ) is a database of staffing records which is audited. 36Nursing homes are required to report total direct care hours spent as well as the facility census to the PBJ. 36

Study Sample
The study sample included all Medicare and Medicaid certified SNFs from 2018 to 2021, or 62 331 nursing home-year observations.Hospital-based nursing homes and federal government nursing homes (n = 2311) were excluded because these institutions may have different organizational structures and operating environment than free-standing facilities.Additionally, their nursing home cost reports are part of overall hospital cost reports and are not included in the Medicare nursing home cost reports.After merging all datasets, the final analytical sample was 45 833 nursing homeyear observations or an average of 11 458 nursing homes per year.The study period comprised the pre-pandemic period of 2018 to 2019 and the pandemic period of 2020 to 2021.

Measures
Table 1 provides a comprehensive overview of the operationalization and data sources of all the variables used in the study.The dependent variables in this study are operating revenue per resident day, operating cost per resident day, and operating margin.The operating revenue per resident day was calculated by dividing the operating revenue by the total inpatient days.The operating cost was calculated by first deducting the Medicare disallowed expenses-which are specific cost or charges that are not permitted under Medicare reimbursement guidelines 37,38 -and then dividing the adjusted operating expense by the total inpatient days.Operating margin was calculated by subtracting operating revenue from operating expense and then dividing it by operating revenue.To address outliers in the financial data, we examined the operating revenues and operating costs and removed observations that were 5 standard deviations or more from the mean.
The independent variable consisted of the COVID-19 pandemic, and it represents the 2-year period of the pandemic 2020 to 2021.The reference group, pre-pandemic represents the 2-year period before COVID- 19 (2018-2019).Given that the pandemic may have had a disproportionate effect on facilities with greater reliance on post-acute care, we included an interaction between COVID-19 pandemic variable and high Medicare.High Medicare is a dichotomous variable, where 1 = 25% or higher Medicare census "top 25th percentile" and 0 = less than 25% Medicare census "bottom 75th percentile." 0][41][42][43][44] Organizational control variables included occupancy, payer mix, acuity index, resident racial/ethnic mix, nurse staffing, and quality measures star rating.Market control variables included the Herfindahl-Hirschman index, Medicare Advantage (MA) penetration rate, per capita income, percent of individuals 65 and up.][47] The occupancy rate was computed by dividing the number of occupied beds by the total number of beds in the nursing home.Payer mix is the percent of residents who are Medicaid.The Acuity Index is a measure of the level of care required by nursing home residents; it is determined by the number of residents who require various levels of assistance, such as bed mobility, shifting from bed to chair, eating/toileting, and those who require specific treatment, such as physical therapy or tube feeding.Proportion of racial/ ethnic minorities is the proportion of nursing home residents who were White, Black, Hispanic, and other race/ethnicity.Nurse staffing reflects: RN hours per resident day (PRD), licensed practical nurse (LPN) hours PRD and certified nursing assistant (CNA) hours PRD.RN skill mix was measured as the proportion of RNs hours to the total nursing staffing hours.The quality measures star rating was obtained from the CMS Care Compare Five-Star Quality Rating System.Ratings for the quality measures are based on performance on 15 quality measures: 9 long-stay measures and 6 short-stay measures.The Care Compare website assigns a score to nursing homes ranging from 1 (lowest quality) to 5 (highest quality).Nursing homes with a star rating of 1, are below average, while nursing homes with a star rating of 5, are above average.
The Herfindahl-Hirschman index (HHI) is a continuous variable that ranges from 0 to 1. HHI is calculated as the sum of the market shares of nursing homes in a county.When the index is closer to 1, it signifies a less competitive market. 44Medicare Advantage (MA)/managed care market penetration is measured as the percentage of all Medicare beneficiaries in the county enrolled in an MA plan.Per capita income is measured by an individual's average wealth in the county.The percent of individuals who are 65 years and older is the proportion of all residents 65 years and older to the total nursing home population.
The COVID-19 control factor variables used in this study are available only in the post-period such as the COVID-19 relief funding to nursing home by the federal government during the pandemic, and the total resident confirmed COVID-19 cases per 1000 residents at the nursing home facility level.

Analysis
We focused on nursing homes as our unit of analysis.Descriptive statistics and univariate analysis were performed for each of the variables.Continuous variables were evaluated using mean and standard deviation, while categorical variables were evaluated using frequency and percentages.
Bivariate analysis was used to compare the study variables in the pre-COVID-19 and COVID-19 period.The data were modeled using fixed-effects regression to account for the time invariant and unobservable variables.The study controlled for time trends using year fixed effects, and robust clusters were used to address correlation within groups at the facility level. 48We also adjusted for inflation using the CPI inflation index.Stata v17 was used to conduct the analysis of the study.P-value < .05 was considered statistically significant.

Results
Table 2 shows the bivariate statistics for the study sample.Operating revenue per resident day increased from $317 pre-COVID-19 to $328 during COVID-19.Operating cost per resident day increased from $308 pre-COVID-19 to $343 during COVID-19.Nursing homes operating margins decreased from about 2.7% pre-COVID-19 to −3.0%   3 presents the fixed effects regression results for nursing home operating revenue per resident day, operating cost per resident day and operating margin.Our results suggest that nursing financial performance deteriorated during COVID-19.On average, the operating margin was about 4.3% lower during the pandemic (P < .001).The impact of COVID-19 was associated with an increase in both operating cost per resident day and operating revenue per resident day.While operating revenue per resident day increased by $9.44 (P < .001),operating costs per resident day also increased by $26.51 (P < .001)during COVID-19.This suggests that even though there was an increase in operating revenue per day, operating costs were also on the rise.A sensitivity analysis of the fixed effects model was conducted by excluding the control variables.The results show a very similar pattern to those obtained with the full model.Operating revenue per resident day increased by $15.80, operating cost per resident day increased by $31.49, and operating margin was 4.9% lower during the pandemic.Table 4 shows the fixed effects regression results for the interaction of COVID-19 pandemic and high Medicare.The interaction was significant indicating that the effect of the pandemic varied based on the facilities' degree of post-acute specialization.High Medicare facilities experienced an increase in operating revenue of $1.4 compared to $10.27 for those with low Medicare (Appendix 1).Cost increases for both groups were very similar at approximately $27.Finally, high Medicare facilities experienced a lower decline in operating margin (−2.5%) compared to low Medicare ones (−4.5%).
In terms of the control variables, nursing homes with higher occupancy rates had both lower operating revenue and lower cost per resident day, as well as higher operating margin (P < .001).Nursing homes with a higher percentage of Medicaid payers had a lower operating revenue per resident day, lower operating costs per resident day, and a lower operating margin (P < .001).Nursing home with greater nursing staffing intensity had both higher operating revenue and higher costs, as well as lower operating margin (P < .001).Nursing home with higher quality measure star rating had a higher operating margin (P < .001)compared to those which lower quality measure star rating.

Discussion
The primary goal of this study was to assess nursing home financial performance during the COVID-19 pandemic.The longitudinal study looked at the financial performance of INQUIRY nursing homes from 2018 to 2021.We classified pre-COVID-19 as the years (2018-2019) and COVID-19 (2020-2021).This study's findings will contribute to the body of knowledge, providing more insights into how nursing homes fared financially during the pandemic, as well as stress the importance of monitoring and paying greater attention to nursing home transparency and accountability of their finances.
The impact of COVID-19 on nursing homes' operating costs per resident amounted to around $26.51.The increase in the cost to care for a nursing home resident may be partly attributed to unforeseen rises in demand for PPE, stemming from both price hikes and shortages. 14,47Despite the federal government intervention, nursing homes struggled to gain adequate access to supplies as hospitals were the top priority. 14Nursing homes, on the other hand, had to safeguard staff and residents, by purchasing more PPE than usual, resulting in increased operating costs. 47,49Several nursing homes were also penalized for not having appropriate PPE or if staff members became infected with COVID-19. 50In addition to the exacerbated staffing shortages that nursing homes already faced before the pandemic, they had to fulfill the increased demand for care caused by the pandemic, hiring more staff directly or through agencies and pay higher wages and agency fees, [15][16][17][18][19][20][21] increasing the cost of providing care to residents. 24,25hile our study revealed an increase in operating revenue per resident day of $9.44, this increase should be viewed with caution given that operating costs per resident day increased almost 3 times more than operating revenue per resident day.The occupancy rate decrease may have been a contributing factor, with our findings indicating a drop in occupancy rate of approximately 7%.This aligns with other research, which has also noted a reduction in nursing home occupancy rates during this period. 24,26Many families were hesitant to send their loved ones to nursing homes for fear of exposing them to the virus.Furthermore, some nursing homes may have refused admission from hospitals because they lacked the capacity to care for such residents, while other nursing homes may have specialized in caring for COVID-19 residents.
Our study also showed that nursing homes had negative operating margin during COVID-19.This can be attributed to the increased operational costs faced by nursing homes during the pandemic.The decline in the occupancy rate further exacerbated the situation, as lower occupancy rates directly impact revenues generated by nursing homes, ultimately leading to a reduced operating margin.Nursing homes had to navigate staffing challenges during the pandemic, marked by increased demand for healthcare workers and staff shortages due to illness or quarantine measures. 19These challenges resulted in higher labor costs, with facilities having to resort to paying overtime or hiring contract staff at premium rates. 21Although some nursing homes received financial assistance and relief through government programs, these measures may not have fully compensated for the extensive financial challenges posed by the pandemic.The combination of heightened operational costs, reduced occupancy, and increased staffing expenses may have contributed to the negative operating margin observed in nursing homes during the challenging period of COVID-19.
Our results also suggest that nursing homes were differentially affected by COVID-19 based on their Medicare payer mix.Nursing homes with a low percentage of Medicare residents (less than 25%) experienced a more substantial increase in operating revenue per resident day during COVID-19 than those with a high percentage of Medicare residents (25% and higher).The higher revenue per resident day among lower Medicare facilities may have been due to higher Medicaid rates in many states during the pandemic. 29,51However, the change in operating cost per resident day was similar for both types of facilities.While both high and low Medicare nursing homes experienced a decline in operating margin during COVID-19, the decline for low Medicare facilities was worse.This suggests that low Medicare nursing homes may have been disproportionately affect by the lower occupancy rate during the pandemic, resulting in a worse operating margin.
Nursing homes with higher occupancy had a higher operating margin.Having higher levels of occupancy could be a key strategic decision for nursing homes' financial performance.Moreover, our findings suggest that nursing homes that can effectively manage their resources and implement cost-saving measures may have a better chance of achieving a higher operating margin.
Based on our study findings, nursing homes that had higher nursing staffing intensity had a lower operating margin, likely due to the increased labor costs associated with hiring staff or increasing staffing hours.While having more nursing staff may likely improve resident care and satisfaction, 19,52 our results suggest that it may not necessarily lead to a higher operating margin.][21] Our result also showed that nursing homes with higher quality measure star ratings were associated with higher operating margins.A plausible explanation for this association is that facilities with superior quality measures, as reflected in their quality measure star ratings, demonstrate effective management of residents, thereby promoting better overall health.Previous research has underscored the interconnectedness between the quality of care provided by nursing homes and their financial performance. 44In essence, the ability to maintain higher standards of care is not only beneficial to the health and well-being of residents but may also play a pivotal role in shaping the economic sustainability of these facilities.

Managerial/Policy Implication
There are some managerial and policy implications from this study.First, our research shows that COVID-19 negatively impacted nursing homes' financial performance by disrupting operations and finances.This highlights the impact of external environmental factors, such as the pandemic, on organizations.Second, even with federal government intervention during the pandemic, some nursing homes continued to experience financial hardship, demonstrating their vulnerability within our healthcare system.Nursing homes require special attention from policymakers during a crisis or another epidemic because they care for our most vulnerable people.Given the pandemic's significant inflationary impact on the economy, policymakers must prioritize nursing home reimbursements.Reviewing Medicare and Medicaid reimbursement rates is critical now so that nursing homes can not only have the necessary funds to provide adequate care to their residents, but also attract and retain the requisite level of personnel.
Furthermore, considering the ongoing inflation and increasing labor expenses, it is crucial to closely monitor nursing home finances.The financial challenges faced by some facilities have the potential to lead to closures, which could have far-reaching implications, significantly impacting not only the nursing homes themselves but also posing broader consequences for the residents and the community.Finally, there is a need for nursing homes to enhance the accuracy of their cost reports and improve financial transparency and accountability.This necessity arises from the potential incentive for nursing homes to hide profits in order to secure potentially higher reimbursements from Medicare and Medicaid.In the absence of audits, nursing homes may manipulate their financial reports, involving practices such as under-reporting disallowances, concealing profits within related party costs, transferring assets to REITs and related parties, and portraying losses to minimize tax obligations.

Limitations
This study has several limitations.First, shortly before the pandemic, CMS modified the way it paid for SNF services to encourage more value in SNF spending by implementing the Patient Driven Payment Model (PDPM).The impact of PDPM policy change may not be reflected in our data as we only tried to isolate the impact of COVID-19 on nursing home financial performance.Second, although we tried to consider COVID-19 related factors, there could be other variables related to COVID-19 that may have affected our study, which may be unknown to us and therefore where not considered.Third, there is a growing body of literature on nursing homes hiding profits in the related party transactions. 38Exploring the impact of related party transactions on financial performance was beyond the scope of this paper.However, further research is needed exploring this area.Fourth, though we controlled for state variation in our model, if there were any policy changes in the state during the period, it may not have been accounted for in the model.Lastly, since we relied on CMS Cost Report data sets for our analysis, there might have been timing differences in some of the reporting since the data is reported on a fiscal year.

Conclusion
This study showed that nursing homes financial performance deteriorated during COVID-19 pandemic.COVID-19 further exposed some of the long-standing shortcomings in nursing homes, revealing severe flaws in how we care for our country's most vulnerable population.On a positive note, there are many valuable lessons for nursing homes to learn from the COVID-19 pandemic.The pandemic has highlighted the need for nursing homes to improve the accuracy of their cost reports and enhance financial transparency and accountability.If nursing homes provide more transparency and show more accountability for how government money is spent, the government might be able to target resources where they are most needed during a pandemic.

Declaration of Conflicting Interests
The author(s) declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.

Table 1 .
Variables Operationalization and Data Sources.Nursing staffing hours per resident day (HRD) for RN HRD increased during COVID-19 from 0.41 to 0.44 and LPN HRD increased from 0.79 to 0.81.However, for CNA there was a decrease from 2.16 to 2.02 during the same period.RN skill mix increased from 11.8% pre-COVID-19 to 13.2% during COVID-19.The number of nursing homes that had quality measure star rating ranging from 1 to 3 decreased during COVID-19, while the number of facilities with rating 4 to 5 increased during COVID-19.HHI of 0.2 remained relatively constant signifying highly competitive markets.The proportion of Medicare eligible patients enrolled in Medicare Advantage increased from 33.6% pre-COVID-19 to 38.2% during COVID-19.Per capita income increased from $51 210 per year pre-COVID-19 to $53 054 mix (Acuity Index) for the nursing home population remained constant.Nursing home residents that were White decreased from 77.9% pre-COVID-19 to 76.3% during COVID-19, while Black (10%), Hispanic (2.9%), and other race (9%) pre-COVID-19 increased only slightly during COVID-19.